Answer ... Acquisitions of shares or assets, whether direct or indirect, will be subject to the merger control regime. Acquisitions include leases. However, acquisitions by way of security interests or in the ordinary course of business are not subject to Section 50 of the Competition and Consumer Act (CCA).
There is no threshold acquisition level (eg, X% of shares). The test is whether the acquisition has the effect, or will be likely to have the effect, of substantially lessening competition in any market for goods or services in Australia or in a state, territory or region in Australia.
The CCA applies where:
- the acquisition is of property in Australia, whether of shares in an Australian company, an Australian business or Australian-based assets; and/or
- the acquirer is incorporated in Australia, carries on business in Australia or is an Australian citizen or ordinarily resident in Australia.
If neither of the above is satisfied, the CCA will still apply where an offshore merger or acquisition occurs that results in the acquirer obtaining, directly or indirectly, a controlling interest in a body corporate that carries on business in Australia. A controlling interest is held if the relevant body corporate becomes the subsidiary of the acquirer.
Creeping acquisitions (ie, several small acquisitions over time) may not, when considered in isolation, breach Section 50. However, these acquisitions may be regulated by the Australian Competition & Consumer Commission (ACCC) under the misuse of market power prohibition in Section 46 of the CCA.
Answer ... ‘Control’ is not a relevant concept, as the CCA does not provide for a mandatory merger filing threshold.
Instead, the ACCC’s Informal Merger Review Process Guidelines encourage the parties to approach the ACCC for an informal merger clearance if:
- the products or services of the merger parties are either substitutes or complements; and
- the acquiring firm will, following the merger or acquisition, have a market share of greater than 20% of the relevant market.
This is an indicative guide only; and although the ACCC will rarely investigate a merger or acquisition in other circumstances, the parties must assess the impact on competition in the relevant market or markets on a case-by-case basis.
Answer ... Minority interest acquisitions are covered by the merger control regime, as the test that must be applied is whether an acquisition would have the effect or be likely to have the effect of substantially lessening competition in a market.
The ACCC’s Merger Guidelines provide that the ACCC will look at whether an acquirer will obtain control of a target even if majority ownership of the shares in the target is not acquired. For example, the ACCC will take into account:
- whether the ownership distribution of the remaining shares effectively means that the acquirer will obtain control via a minority interest;
- the distribution of voting rights;
- pre-emption rights; and
- the acquirer’s rights under other contractual arrangements.
Even where a controlling interest is not acquired, the ACCC may consider that an acquisition or potential acquisition would be problematic under Section 50 of the CCA – for example:
- in the case of a horizontal acquisition, if this would increase interdependence between rivals which would have a negative impact on competition; or
- if an acquisition would provide access to commercially sensitive information in relation to competitors.
Answer ... The establishment of a new joint venture (whether the joint venture is incorporated or unincorporated) will be subject to Section 50 of the CCA if that establishment involves an acquisition of shares or assets – for example, if the joint venture acquires assets from one or more of the participants in the joint venture. The test remains the same as for other acquisitions – that is, whether the acquisition would have the effect or be likely to have the effect of substantially lessening competition in a market.
Acquisitions by an existing joint venture (whether the joint venture is incorporated or unincorporated) will also be subject to Section 50 of the CCA.
Answer ... Foreign-to-foreign transactions are covered by the merger control regime. Under Section 50A of the CCA, the Australian merger control regime will apply where an offshore merger or acquisition occurs that results in the acquirer obtaining, directly or indirectly, a controlling interest in a body corporate that carries on business in Australia. A controlling interest is held if the relevant body corporate becomes the subsidiary of the acquirer.
If such an offshore merger or acquisition occurs, the Australian Treasurer, the ACCC or any other person may seek a declaration from the Australian Competition Tribunal. If it is so satisfied, the Australian Competition Tribunal may declare that the transaction is likely to substantially lessen competition in a market in Australia or in a state or territory in Australia, and will not result or be likely to result in a countervailing public benefit. If a declaration is made, the parties to the transaction are required to remedy this; if they do not do so within the relevant timeframe – typically, six months – they must cease carrying on business in Australia.
Answer ... There is no compulsory requirement to notify the ACCC of a proposed merger or acquisition. However, the ACCC has developed a notification threshold as a guide to when parties should consider applying for an informal merger review. Mergers that fall outside that notification threshold are rarely investigated by the ACCC. The notification threshold is that both:
- the products of the transaction parties are either substitutes or complements; and
- the merged firm/acquirer will have a post-transaction market share of greater than 20% in the relevant market or markets.
Answer ... Acquisitions of assets by way of the grant of a security interest or in the ordinary course of business are not captured by Section 50 of the CCA.
There are several specific exemptions from the restrictive trade practices provisions of the CCA – that is, not limited expressly to the merger control regime in Section 50 – as set out in Section 51 of the CCA. For example, mergers or acquisitions which are specifically authorised by federal legislation (excluding those relating to patents, trade markets, designs or copyright) will not be subject to Section 50.